McKee v. Pearson

1

SHARMIL MCKEE Appellant v. MICHAEL K. PEARSON

No. 679 EDA 2022

J-A26035-22

Superior Court of Pennsylvania

January 3, 2023

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

Appeal from the Order Entered April 26, 2022 In the Court of Common Pleas of Philadelphia County Family Court at No(s): 11-05994 PACSES #553112291

BEFORE: BOWES, J., KING, J., and PELLEGRINI, J. ^[*]

MEMORANDUM

PELLEGRINI, J.

Sharmil McKee (Mother) appeals from the April 26, 2022^[1] order of the Court of Common Pleas of Philadelphia County (trial court) denying her exceptions and entering a final child support determination. We affirm.

I.

We glean the following facts from the certified record and the trial court's opinion. Mother and Michael K. Pearson (Father) have one child, C.M., and Father was previously ordered to pay Mother $1,021.67 per month in support. On October 23, 2017, Mother filed a petition to modify the support order alleging Father's income had increased while her own had decreased. The matter proceeded to a hearing in front of Support Hearing Officer (SHO) Wayne Bennett (SHO Bennett) over the course of five days in 2018 and 2019.

At the hearings, Mother sought to establish that Father's actual income was greater than his reported salary as the President and sole shareholder of Union Packaging, LLC (Union), a registered S-corporation. Father had owned Union since 1999 and testified that he earned a salary of approximately $146,000 annually. He did not receive any additional income from Union. Union reported taxable income of approximately $665,751 in 2017 but Father testified that he did not personally take home that amount. He received additional miscellaneous income of over $10,000 and made charitable donations of over $15,000 that year. Finally, Father paid his former spouse approximately $100,000 per year in distributions from Union under an equitable distribution order, as Union was a marital asset.^[2] Based on this testimony, SHO Bennett calculated Father's available income for support purposes as approximately $175,000.

On the first day of the hearing, Mother testified that she was unemployed due to health issues but had previously practiced law as a solo practitioner earning $38,000. She had earned an MBA in 2014 and was in the process of completing a Ph.D. in business, but had not been active in school for over a year due to her health condition. By the final day of the hearing over a year later, Mother had obtained a job as a compliance officer earning $85,000 annually. SHO Bennett concluded that Mother had an earning capacity of $75,000 annually from the date of the petition until she started her new job.

Mother provided healthcare for C.M. initially through Medicaid and later through her employment. Under the parties' custody order, Mother was responsible for C.M.'s schooling expenses. Mother testified that C.M. would be attending Miquon School with a partial scholarship and that she would pay $11,000 per year for his education.

SHO Bennett additionally reviewed each party's expenses, assets and obligations and determined that no deviation from the support guidelines was appropriate. He recommended that Father be ordered to pay support of $1,199.98 per month from the date of the modification petition until the date Mother obtained employment, at which point the award would be adjusted to $1,180.06 monthly. He ordered Father to pay $50 per month toward arrears.

Mother timely filed exceptions arguing that SHO Bennett had erred in calculating her earning capacity without sufficient factual support and without considering her health conditions and disability. She further argued that he had erred by failing to include all of Union's taxable income in Father's income. Finally, she contended that an upward deviation from the support guidelines was appropriate based on Union's total business value, C.M.'s tuition costs and the difference between the parties' income.

Following argument, the trial court remanded the case for the SHO to determine whether Union's taxable income was cash flow income to Father and whether Union's business valuation was an appropriate basis for an upward deviation from the support guidelines. It denied the remainder of Mother's exceptions. The trial court asked the parties which SHO the matter should be remanded to and Mother requested SHO Bennett. Father requested SHO Michael Pandolfi (SHO Pandolfi), who had handled the case when prior support orders were entered. The trial court ordered the case be remanded to either SHO Bennett or SHO Pandolfi depending on scheduling availability.

Mother and Father then proceeded to a remand hearing in front of SHO Pandolfi. Mother called certified public accountant John McGovern (McGovern) as an expert witness to testify regarding Father's income from Union and the total value of the business. McGovern's opinions were based on his review of Father's personal 2017 tax return and Union's 2017 tax return. Union's tax return listed compensation to officers totaling $148,336 for that year and Father's personal return listed $143,841 in salary from Union. Union made $271,821 in distributions that year. Union's total reported income was $654,814, which McGovern explained was subject to taxation regardless of whether it was distributed. After reviewing the company's assets, inventories and receivables, he concluded that it could pay up to $619,731 in additional distributions based on its bank account balance. He opined that the company would likely not pay out that much due to upcoming expenses and obligations and was not aware of any covenants that might impact how much money Union retained or distributed.

McGovern also testified that he calculated Union's value as a company by looking at its book value, assets and liabilities. He believed that Union had bought out a prior shareholder for $1,045,000. He estimated Union's value at three million dollars but clarified that there had been a recent sale of the business and he did not know the purchase price. He further stated that he had not been engaged to provide a valuation of the business.

Father testified that the reported $665,751 in profit was an "accounting measure" and he was required to pay tax on that amount. N.T., 12/10/20, at 37. He testified that part of Union's distributions in 2017 was used to pay his former spouse in compliance with their equitable distribution order. He said that Union consistently used an accrual method of accounting and did not alter its accounting methods in 2017. Finally, he said that various loan covenants governed how much money could be distributed from the company.

SHO Pandolfi issued a report finding that Union's taxable income was not distributed in full to Father and should not be included in calculating support. He also determined that Union's valuation was not a proper basis for deviation from the support guidelines because Father could only realize that financial gain through selling the business. Accordingly, SHO Pandolfi recommended that SHO Bennett's proposed support order be made final.

Mother timely filed exceptions challenging both findings. Prior to the hearing on exceptions, she filed a new petition to modify the support order. The Pennsylvania Automated Child Support Enforcement System (ePACSES) Intake Unit sent her a letter stating that it could not process the request because a hearing was scheduled in the case. It advised her to "wait for the outcome of [the] hearing before any further action [could] be taken." See Supplemental Record, 8/16/22, Exhibit 2, Case Status, 4/8/21.

The trial court denied the exceptions following argument. At that time, Mother attempted to argue that SHO Pandolfi should have considered the sale of Union, which occurred in June 2019, when calculating Father's support obligation. The trial court responded that SHO Pandolfi was only reviewing Father's income as of the date of the October 23, 2017 modification petition, and that any changes that occurred thereafter would have to be raised in a separate petition. Mother said that she had attempted to file an additional modification petition following the sale of Union but the Clerk of Courts had improperly declined to accept the filing while her exceptions were pending.

The trial court responded that there was no final order of support so another modification petition would be premature, but that Mother could move for modification once the instant petition was resolved.

At that juncture, Mother inquired as to why the trial court had rescheduled the exceptions hearing, which occurred approximately one year after the remand hearing. The trial court responded that it was responsible for all proceedings in the matter under the consolidated case management (CCM) order so that the litigation would not proceed piecemeal in front of different jurists. It had rescheduled the hearing due to various issues in the courthouse. Mother accepted the explanation without objection.

Regarding the second exception, Mother argued that SHO Pandolfi should have taken the sale of Union into account when deciding whether an upward deviation from the guidelines was appropriate. When the trial court again stated that only the circumstances as of 2017 were at issue, Mother argued that the petition to modify had been pending for several years and that the sale had occurred before the remand hearing. The trial court responded that the guideline award was "relatively generous" and asked why an upward deviation was justified based on the facts available to SHO Pandolfi at the hearing.^[3] N.T., 12/8/21, at 66. Mother replied that the standard for deviation was based on "the entirety of the situation." Id. at 67. In response Father attempted to argue that the trial court should...